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Independent film making: are the banks killing the goose that lays the golden egg?

In the face of mounting banking and associated legal costs, independent film makers are increasingly questioning the commitment of bankers to the movie business. Certainly in the capital starved world of the 1990's the willingness of financial intermediaries to participate in an industry can mean the difference between success and failure.

Starting with the 1960%, foreign markets again provided a source of guaranteed revenues against which indies could finance their pictures. In the past, legal costs were capped to ease the pressure on production budgets. Everything seemed to work and the industry flourished, albeit with a few blemishes. Then came the 1990's straining all the ground rules and adding layer upon layer of complexity to the financing process. The banks reacted by being more fastidious about financing requirements.

This attitude on the part of bankers is reflected in their dramatic exit from financing indies at the company level and by the slow down in funding of individual projects requiring producers to do early stage financial planning to contain sky rocketing legal and banking fees and to avoid going into principal photography with the bank and/or distributor slugging it out as to who has priority over what funds.

Conspiracy theories aside, an informal poll conducted by Movie/Video Age found that most financial intermediaries are in a cost cutting mode preferring to do business with people they have an existing relationship with. Richard Soames, CEO of Film Finances, a company with long standing expertise in bonding movies. sees this caution continuing visa-vis all aspects of bankers' relationships with film makers. Part of the problem, according to Soames, is that the banks have expertise in lending against discounted pre-sale contracts. They don't have much experience in investment banking. Thus, the financial technology which is available to other equally risk oriented industries does not filter through to the movie business. Nor are they much inclined to make straight equity investments in projects, especially after the disappointing performance of publicly held film funds in the late 1980s. According to Alan Gadney, an independent producer who specializes in teaching a course on film finance through the Movie Money Seminar, what the future holds remains to be seen with much hope being pinned on new markets. such as Eastern Europe, and developments in digital technology. These new revenue sources coupled with technological developments affecting the distribution of films may generate sufficient cash to lure the banks back in. In the meantime independent producers are advised to develop a financial plan early in the game and to get feed back from the lender as to what they will require from the distributors' contracts before they are signed. This could avoid much pain and frustration later.
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Title Annotation:includes related article on how film makers can make other financing arrangements
Author:Tasca, Eileen
Publication:Video Age International
Date:Sep 1, 1992
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